Rabobank’s RaboResearch Global Economics & Markets team has highlighted the possibility of a historic tightening cycle by the Bank of Japan (BOJ), referencing comments from former BOJ director Momma. According to the report, Momma considers another 25 basis point hike by the BOJ a 'real possibility,' which would mark the first back-to-back rate increase since 1989-90 and the first monthly consecutive hike since March 1980, when rates reached 9.0% [1].
The probability of this back-to-back hike is estimated at 20-30% by Momma, indicating that while not the base case, the scenario is being seriously considered by market observers [1]. The initial 25 basis point hike by the BOJ reportedly left the Japanese Yen 'hanging,' raising questions about whether a second hike could significantly impact the Yen carry trade, a popular strategy among investors [1].
Rabobank’s analysis suggests that such a move by the BOJ could test the resilience of the carry trade, potentially leading to increased volatility in currency markets. The report underscores the historical significance of the potential policy shift, noting that 'history [is] possibly being made around us in markets' [1].
No specific market reactions or analyst forecasts beyond Momma’s comments are provided in the article.
CONCLUSION
Rabobank’s report draws attention to the possibility of a rare back-to-back rate hike by the BOJ, with potential implications for the Yen and carry trade strategies. While the probability remains moderate, the event could mark a significant shift in Japan’s monetary policy landscape.